In the last few years residential demand response (DR) has become a thriving market. Recently, Constellation and Honeywell rolled out a service for all customers in areas that the companies serve designed to encourage consumers to purchase Honeywell thermostats and network them into Constellation’s platform. Initially introduced only to Startex customers (a Texas subsidiary of Constellation) earlier this year, this service highlights the rising competition for energy customers.
Constellation claims that the program has the potential to shave upwards of $128 annually from customers’ electric bills. Such services could help utilities reach energy efficiency targets as well as assemble an effective pool for residential DR programs.
There’s only one problem here, and it’s exacerbating tensions between utilities, energy service companies, and regulators. The problem is that this type of program, also referred to as a hybrid DR model, blurs the lines around who exactly “owns” the customer, as well as who is providing the resource.
The New Disruptors
It seems natural for utilities to be receptive to the continued expansion in resources used to target electric customers for energy efficiency and DR programs. But many utilities, particularly those in regulated markets, see this as encroaching on an established model in which the utility acts as the face of the service in all cases (regardless of who’s actually providing the service). As utilities shift from vertical producers and deliverers of kilowatt-hours to being providers of electric services (the Utility 2.0 model), the general consensus is that they want to maintain their statutory ownership of their customer base. Having already given up so much, it’s likely that utilities will put up a fight in holding onto at least this little bit of status quo and margin.
But that’s not how the many disruptive participants, which have evolved within the energy and utility industry or entered from the broadband and IT spheres, want to play. They want the customer too, either to expand their business and gain more margin, or because they already own the customer through their primary business (think broadband providers).
Not Letting Go
Looking at it from an economic perspective, some argue that allowing non-regulated service vendors to compete will eventually favor the customer. Others point out that, while an electric services model does have the characteristics of a highly competitive market, the fact remains that delivering electricity requires substantial and expensive infrastructure, therefore limiting the number of competitors, which could disfavor the end user. Regulators have been understandably reluctant to institute any sort of rapid overhaul.
I’d argue that regulators and utilities are highly aware that they must change the way they do business in order to facilitate the transition of the energy industry to a lower-carbon state. But it’s not surprising that they still want to defend their end-user relationships. Customers like having a single point of contact for their energy services – not separate contacts and bills for delivery and energy efficiency. Furthermore, as utilities lose revenue associated with dismantled vertical business models, energy efficiency and DR are among the few areas where they have the ability to supplement losses. As hybrid DR models spread, it’s unlikely that incumbents will let their customer relationships go easily.
Tags: Distributed energy, Policy & Regulation, Smart Utilities Program, Utility Innovations
| No Comments »